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Making money selling toys isn’t child’s play – even for the big boys

Even Toys R Us, a pioneering big box retailer, has struggled to make money selling toys. Last week it filed for bankruptcy protection.
Even Toys R Us, a pioneering big box retailer, has struggled to make money selling toys. Last week it filed for bankruptcy protection. AP

The latest name to be added to the ledger of ailing chain retailers is Toys R Us, which filed for bankruptcy protection last week.

The company says it’s not closing stores; the people taking the scalping, in this instance and at the moment, are investors and debt holders.

The usual suspect is getting a good portion of the blame for Toys R Us’ financial difficulties, and that Seattle-based (for the moment) online retailer certainly earns it. But that’s only part of the story.

Toy retailing has long been a highly competitive proposition. Decades ago the local independent toy store had to go up against the giant downtown department stores, many of them renown for their huge and elaborate toy departments.

Then came the discounters in the form of Kmart and hundreds of regional competitors, each with toy departments as big as most free-standing stores and with the size and purchasing clout to offer pricing the independents couldn’t hope to match.

That generation of discounters was succeeded by the next, in the form of Target and Walmart, and the emergence of the category-killer store in sporting goods, consumer electronics, books and music, home furnishings – and toys.

It was a crowded sector even before Amazon showed up. Drug stores, grocery stores, gift shops, dollar stores, even garage sales, everyone had a piece of toy retailing.

For the local independents, the arrival of Amazon was just one more (and this case huge) competitive burden to bear, and for some it was one too many. Downtown Tacoma’s Learning Sprout Toys gave up the battle earlier this year.

There are holdouts, such as Teaching Toys in Tacoma’s Proctor District and Gig Harbor. The indies survive by staying out of the way of the mammoth players and out of price competition they can’t win. They stock items not driven by massive marketing campaigns or huge brands and not likely to be carried by the chains, and by knowing their customers and their local market.

It’s a niche business and it carries plenty of risks; the online world, whose global reach is accessible to even the tiniest toy producer, removes some of the advantage independents have in carrying items not available at chains.

But it’s a strategy that a category killer such as Toys R Us can’t avail itself of. It has no choice but to be in the thick of competition with Amazon, Walmart, Target and (in this market) Fred Meyer. Toys R Us’ problems are further complicated by a huge debt load it’s carried.

Even with all that, the story is incomplete. There’s also the issue of toys themselves and what kids want.

You wouldn’t know it from the wall of sets and kits in your local store, or how many of them show up as gifts at birthday parties, but Lego, one of the enduring and classic toy brands, has reported a revenue decline. In reaction, the company is cutting 1,400 jobs worldwide.

Toys don’t compete just with other toys for parents’ money and kids’ attention. Sports equipment is often just as valued a gift as a toy. Electronic devices, screen-based entertainment and video games have grabbed a huge market share.

Meanwhile, tastes change, fads come and go and kids age out of certain types of toys (as one who tracks the model railroad industry, your columnist can attest to the hobby’s problem of attracting and retaining kids once they’re beyond the Thomas stage; Lionel is not the toy brand it was in the 1950s.)

Thus everyone in the toy business, from the indies to the chain stores to the online retailers (even they need some margin to build those distribution networks) to the manufacturers, has problems.

Everyone, that is, except the kids themselves, who for centuries have been happy to create toys out of the most basic of items and play with them if more elaborate toys weren’t available (although those are pretty cool too.)

One of those basic items has been perennially popular as the material for a universe of toys, from dollhouses to spacecraft to treasure chests to sleds. Thanks to its original purpose, the item is enjoying something of a renaissance because of its crucial role in the distribution of toys, and just about everything else we buy.

Demand has been growing to the extent that some Washington mills are expanding production of material for making this ubiquitous creation, that can, after its initial use, be put to work as a toy.

That item: the cardboard box.

Bill Virgin is editor and publisher of Washington Manufacturing Alert and Pacific Northwest Rail News. He can be reached at bill.virgin@yahoo.com.

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